A small grocery store sells fresh produce, which it obtains from a local farmer.

Question

A small grocery store sells fresh produce, which it obtains from a local farmer. During the strawberry season, demand for fresh strawberries can be reasonably approximated using a normal distribution with a mean of 36 quarts per day and a standard deviation of 7 quarts per day. Excess costs run .40 cents per quart. The grocer orders 42 quarts per day. Use Table. a. What is the implied cost of shortage per quart? (Round your z value to 2 decimal places, your service level probability to 4 decimal places and your final answer to 2 decimal places. Omit the "$" sign in your response.) Shortage cost per quart $

Explanation / Answer

So Cu/(Cu+Co) = 0.8043

Co = cost of over orderingis = 0.4

Cu = cost of under orderingis =

(1-0.8043)Cu = 0.4*0.8043

Cu =

1.643945 cents

In cents

Hence 0.02 dollars

M Mean 36 S Std dev 7 X Order 42 P value 0.8043 NORM.DIST(X,M,S,TRUE) (X= M+ZS) Z = 6/7 = 0.86

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